The pound sank to fresh lows against the euro today as the Bank of England’s decision to hold interest rates at 5.5 per cent brought the flagging currency only short-lived respite.

Sterling was boosted by a brief rally following the Bank's decision, but the pound quickly lost ground as traders' pessimistic sentiment prevailed.

Fears over weak retail spending and the expectation of a cut in interest rates next month drove the pound down to €1.3282. The fall saw the euro rise to £0.7529 at close, compared to £0.7493 last night.

Sterling also sank to a nine-month low against the dollar of $1.9542 this afternoon, before later rallying to $1.9567.

The pound fell to its new low despite the European Central Bank (ECB) also opting to keep interest rates on hold, at 4 per cent, following concerns an unexpected rise in Eurozone inflation would force a hike.

The euro appreciated against the dollar, as well as the pound, following hawkish comments by Jean-Claude Trichet, the ECB president.

Mr Trichet said it was "imperative" that unions, governments and firms did not spark a wage-prices spiral in pay negotiations.

Divyang Shah, chief strategist at the Commonwealth Bank, said the pound’s gains after the Bank of England decision were limited. He added: “I still think that the bias is for more broad-based pound weakness especially against both euro and the dollar”.

The pound’s latest slump came as oil fell to $92.70, down from its $100 peak last week, on fears over the strength of the US economy and weak manufacturing figures in the Eurozone.

London Brent crude fell $1.67 cents to $92.70, while US crude was down $1.76 at $93.91 this afternoon.

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